Stocks for the Long Run: Honeywell vs. the S&P 500

Investing isn't easy. Even Warren Buffett counsels that most investors should invest in a low-cost index like the S&P 500. That way, "you'll be buying into a wonderful industry, which in effect is all of American industry," he says.

But there are, of course, companies whose long-term fortunes differ substantially from the index. In this series, we look at how individual stocks have performed against the broad S&P 500.

Step on up, Honeywell (NYS: HON) .

Honeywell shares have roughly matched the S&P 500 over the last quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 9.9% a year, compared with 9.7% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Honeywell, it'd be worth $20,500.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about half of Honeywell's total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Honeywell earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Some underperformance here. Since 1995, earnings per share have grown by an average of 3.7% a year, compared with 6% annual growth for the broader index.

What's that meant for valuations? Honeywell has traded for an average of 22 times earnings since 1987 -- a bit below the 24 times earnings average of the S&P 500.

Through it all, shares have been average performers over the last quarter-century.

Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks Honeywell with a five-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Honeywell to My Watchlist.

The article Stocks for the Long Run: Honeywell vs. the S&P 500 originally appeared on Fool.com.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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